Analytics now power many aspects of our everyday life. However, when it comes to analytics-based decision making, some construction firms shy away, thinking it sounds too time consuming or that it can’t possibly compete with years of experience in the field. Plus, with so much business data to analyze, it can seem daunting. But the rewards are well worth the effort so here are some tips to help get you started.
What should I analyze?
The temptation is to say “everything.” However, for most small and mid-sized construction firms, the reality is that it’s neither cost-effective nor feasible to apply analytics to every aspect of the organization. It’s a good practice to step back at least once a year and identify which areas you want to improve in your business. Perform an annual visibility audit. Start by thinking about what you want to analyze from a competitive perspective.
Though it may seem counter intuitive, focus on existing strengths instead of weaknesses as that’s often where the payoff is biggest. Think about what differentiates you from the competition and then determine what information or insight would help blow them away even more.
Cash flow is one area that a lot of construction firms choose to analyze. By closely scrutinizing your cash-flow-related data, you can better understand where your money is coming from, where it goes, and how to maximize it. You can also significantly reduce the occurrence of negative cash flow as well as the amount of shortage.
Once you have determined what areas you’d like to focus on, establish benchmarks related to your current performance and how you compare to other construction firms. Based on your business goals and benchmarks, define key performance indicators (KPIs), such as profit margins or liquidity, and determine how frequently you will monitor progress towards achieving each metric.
What do I need to get started?
Analyzing your business performance requires you to have high-quality data related to whatever process you are seeking to improve. Chances are your business does not lack data. However, it may suffer from a lack of integration, which prevents the information from different departments and functions from being used together. To solve for this, it is increasingly important for construction firms of all sizes to use integrated, construction-specific accounting and operations software.
Assuming your business already uses an integrated, construction-specific software system, you will also need reporting or business intelligence tools that can extract, clean, and transform the data into a format that’s meaningful for users.
New tools and technologies are emerging to make information come alive, including data visualization, process simulation, and predictive techniques. By taking advantage of these innovations, executives can quickly understand business details that would otherwise be hidden or indecipherable.
What’s in it for me?
No matter what industry or line of work you look at, it’s been proven that analytics-based decisions can help organizations gain a competitive edge. Here are three key benefits to consider:
- Improve profits
The right analysis tools can help you spot patterns and trends in your work. For example, an HVAC contractor might determine that installing a certain type of air conditioning unit for a certain type of customer in a specific region has an out sized effect on profitability. Armed with that information, the company’s executives might discontinue sales of less profitable systems, step up marketing in that region, or develop new strategies.
- Prevent repeated mistakes
Nothing holds back a construction firm like a mistake that’s repeated project after project, year after year. This is especially true when you start looking at costs like labor, materials, equipment, and energy consumption. How much would the same bad labor decision cost a general contractor over a period of 20 years? Analyzing your operations across all projects can help you pinpoint these trouble areas and make changes.
- Manage workforce better
For nearly any construction firm, nothing causes the profit and loss statement to swing one direction or the other like labor. Thus, a company that understands its workforce needs better than its competitors can gain an edge in the labor market. Analyzing productivity both at an enterprise level and down to the individual worker will help you determine what exactly needs to change in order to get the right level of productivity from your labor.
Today’s construction environment is too complicated to make decisions based purely on intuition, gut instinct, and professional judgment. It’s time to start using analytics to your advantage. Remember, you can start small and focus on your strengths. By focusing your analytics on the biggest and highest value opportunities, you can overcome many company cultural challenges and objections while refining your data and, ultimately, achieving your goals.
Download the Construction Executive’s Guide to Business Visibility – Analyzing eBook to learn more about tools, technologies, and tips that will simplify the way you analyze your business data.